First, discuss which characters present on the scene will take on an active role during the conflict, and which ones will fade into the background. Player Characters are all generally expected to take part in the conflict, as are any important antagonists — but there might be times in which some prefer to stay away from the spotlight.
Example: The scholar Calliope has offered to help a young bandit by the name of Randolph — she will act as his defendant in the upcoming trial.
The Game Master decides to run the trial as a conflict scene: the participants will be Calliope and Randolph as well as the prosecutor, a man known as Orbek. Interestingly enough, only one other Player decides to have their character take an active role: Montblanc the knight will lend his reputation to help Randolph, while the thief Valea will avoid being seen on the scene — her presence could undermine Calliope's credibility, and she already did her part acquiring important evidence.
Everyone else — the bystanders, the guards, and even the judge herself — will not be active participants. While the Game Master still describes their reactions and behavior, those characters will not get to pursue their objectives or influence the conflict.
New participants may also enter a conflict while it is already underway: characters who wish to do so can join the scene at the end of a round (after step 5).
Each character involved in the conflict will have their reasons: perhaps you want to steal a precious artifact, persuade the Queen of your good intentions, or avoid becoming a monster's mid-afternoon snack. Your antagonists will have goals of their own too, ranging from escaping unharmed to putting an end to your ceaseless meddling.
During this step, each participant should make clear what their general goal in the conflict will be, at least initially.
The Game Master is free to keep some of the antagonists' goals a secret — suffice it to say, if a conflict takes place it's because at the very least they don't want the heroes to achieve their own objectives!